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Remember when you could find high-yield savings accounts (HYSAs) that earned upwards of 5% APY? It seems those days are behind us, at least for now.
Every time the Federal Reserve makes a rate cut — which it is likely to do at least once more before the end of the year — rates drop on HYSAs and other deposit accounts, making them less attractive tools for saving.
With that said, you can still earn 4% or more on a few HYSAs, which is far more than you'll earn on a regular savings or checking account. And compared to other banking and investment options, high-yield savings accounts remain one of the best places to safely store savings while earning a competitive interest rate. Here’s why.
Is it still a good time to open an HYSA?
For money you want to save for a few months or more — such as your emergency savings fund or money you're saving for an upcoming purchase — a high-yield savings account remains one of the best options.
Yes, rates have dropped on high-yield savings accounts, but they're certainly not "low." Looking back at recent years can help put things into perspective.
In 2018 and 2019, the best high-yield savings account offered just over 2% APY. By 2020, you were lucky to find any account with over 1% APY.
Even if rates drop further, HYSAs will continue to do what they do best: offer higher returns than most types of bank accounts.
For example, in November 2024, the national average rate on checking accounts was 0.08%, and on savings it was 0.43%. At the same time, you could find a handful of HYSAs that paid between 4% and 5%.
Read more: The 10 best high-yield savings accounts available today
Is a high-yield savings account right for you?
HYSAs are good accounts for most, but not all, savers. They pay competitive interest rates on deposits, but they also have limitations. Here's how you can decide if an HYSA is best for you:
Who should open a high-yield savings account?
As far as places to keep your savings, it's hard to beat an HYSA — even when rates are generally low. For one, your money is protected against losses if the financial institution fails (as long as your account is held with an FDIC-insured bank or NCUA-insured credit union). Plus, you'll earn a rate of return that beats most other bank accounts.
HYSAs are ideal for money you don't need for day-to-day spending, but may need for an emergency; experts recommend setting aside at least three to six months' worth of your living expenses in an emergency fund. An HYSA is also ideal for storing funds you're saving for a specific upcoming expense, such as a car repair or a down payment on a home.
Read more: How much money should I have in an emergency savings account?
Who shouldn’t open a high-yield savings account?
High-yield savings accounts are designed to hold your savings. For money you want to use day to day, an HYSA is not the right choice, since there can be limits on your withdrawals and transfers. A checking account or possibly even a money market account would be a better choice.
Read more: The 10 best high-yield online checking accounts available today
For funds you want to invest long-term, you'll also want to look elsewhere. You can earn higher rates of return by investing in the stock market via your retirement account, especially if you have an employer match.
A few other drawbacks of HYSAs to consider:
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Variable rates: The interest rates are variable, meaning they can drop in the future at the bank's discretion.
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Access: Most HYSAs are available through online banks, which don't typically offer in-person banking or ATM cards.
Alternatives to a high-yield savings account
If you want competitive interest rates, but an HYSA isn't right for you, there are other bank accounts worth considering. Both of these types of deposit accounts earn rates similar to HYSAs, but they have different benefits:
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Money market account (MMA): Unlike high-yield savings accounts, money market accounts usually come with checks and debit cards. They're also easier to find through traditional banks.
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Certificate of deposit (CD): Interest rates on HYSAs are variable, but you can lock in a competitive interest rate for a set period of time with a CD. The downside is that if you withdraw money from your CD before the maturity date, you’ll have to pay a penalty.
Read more: How to maximize your interest earnings following a Fed rate cut
